The Silent ‘scam’ Destroying Investors
How does an investor know that they’ve been scammed? The following article http://www.investorwatchdog.com/investment-scams-fraud talks about some of the ways investors can protect themselves from being a scammed by a broker. The article is good- it talks about knowing your advisor, and where to get additional information about them to see if their record is clean.
However, while the article is good, it doesn’t hit on the ‘major’ scams perpetrated by brokers. What is that ‘scam?’
The biggest ‘scam’ is advisors putting investors in actively-managed mutual funds. These actively-managed funds use a manager that tries to ‘beat the market’ by market-timing, stock-picking, or betting heavily on a sector or industry to enhance returns. Studies have shown that just about over any time period, managers can not outperform the market. If fact, they underperform the market. Not only do they underperform, they have high cost. High cost comes into play when the manager buys and sells stocks inside the fund, which generates cost- cost that are borne from the investor, not the fund. These cost drive the performance of the fund down. Studies have shown that total costs of the funds can be between 3-5%.
If investors knew the ‘true’ cost of actively-managed funds, they wouldn’t use them. They wouldn’t let brokers put them in underperforming funds. If investors actually knew how much money they were losing by using these funds, they would probably be shocked.
For example- A $100,000 portfolio, earning 6% compounded for 10 years totals $179,084. If the investor earned just 1% more over the same time period, the total would be $196,715. The investor could buy a pretty nice car!
Ask yourself this- Is working with a broker worth the cost of a car? If the answer is no, then work with a Coach to get you the returns you desire.
Enjoy the article.
Here’s to your Wealth!